The Next Evolution of Open Innovation

The Next Evolution of Open Innovation

Operating with an open innovation model takes a little – sometimes a lot – of faith. Even with some high-profile case histories from P&G, Unilever, General Mills, and others, there are many companies aiming to embrace open innovation that are finding the timelines challenging. It’s actually still pretty difficult to find large-scale and compelling data on objective business results across companies from open innovation.

The marketplace is littered with test projects floated by big firms— efforts to partner with the bright minds of entrepreneurs that just never took off and flew like everyone hoped. These are the stories that have led many to lose faith in the open innovation trend. With limited measurable success and companies failing to see a direct payback from their open innovation efforts, the grumbling has begun. A low-level murmur in these communities says it’s a fad. Open innovation, the new definition of innovation, its tie to new business creation—they’re all fads. If we just hunker down and hold on long enough, things will go back to the way they used to be.

Wrong.

This is a false and dangerous mindset. Waiting for the world to spin backward and take us back to the old days is never a good strategy. Instead, what companies need to do is see the shift in innovation not as a quick fix to what ails them but as a long-term evolution in the business world.

I think those in the business world perceive that the open innovation movement has not (yet) fulfilled its promise, despite more than a decade of concentrated effort, for at least two major reasons. First, we’re in the midst of an evolutionary cycle, and open innovation is quietly becoming a more natural and integrated part of doing business. Dedicated and centralized open innovation groups are being reintegrated into the business units where they belong, and the skill set is becoming part of the job description for engineers, product developers, and even marketing managers. This is partly because of the open innovation and crowdsourcing ecosystem that has emerged and is enabling desktop access to expertise, intermediation, and support for corporate managers. So maybe we’re being too hard on ourselves about open innovation’s performance or prospects.

Second, open innovation programs have been too focused on transactional approaches and incremental core business efforts. Corporate R&D teams are writing scouting briefs, posting them to their websites and to the same online marketplaces, and asking for next-generation packaging, ingredients, or form factors. Where’s the long-term competitive advantage in that? It’s much easier to look for solutions for near-term to midterm core business problems and insert them into our product/ service development processes than it is to develop deeper and earlier-stage collaborations with startups and entrepreneurs who might be the same ones to disrupt your business from the outside.

Change takes time. When the change requires a significant shift in strategy, operations, and culture, down to the cellular level and in all the nooks and crannies of a business, it takes even more time. So if your faith is shaky, hold on to it and stay the course to embrace open innovation. To stop or reverse direction to the way things used to be will at the least hinder you, and at the worst kill you.

From Transactions to Relationships

Open innovation does not need to backtrack. It needs to expand. If you are an executive responsible for developing new sources of growth, imagine having the capability to create and engage a network within the broader innovation ecosystem that can not only feed the pipeline but also help you see what’s coming next and help you incubate and prove out emerging business opportunities faster and at reduced risk.

John Seely Brown, with Deloitte’s Center for the Edge and previously chief scientist at Xerox’s famous Palo Alto Research Center (PARC), said it best when he stated, “For open innovation to realize its full potential, it will have to navigate from a narrow focus on transactions to provide much richer support with long-term, trust-based relationships around joint initiatives to address real problems or opportunities.”

Moving beyond initial transactional approaches and two-party co-development into this more mature state, we’ll see relationship-based collaborative networks and, ultimately, innovation ecosystems—truly interdependent organizations. Deeper collaboration and interdependency will be key to success in this new world. “Interdependence” is a great word for this. Just like ecosystems, groups involved in collaborative innovation really do need each other. As a large company, you need the little guys as much as they need you.

Example: Elon Musk’s visionary approach to a performance-based electric vehicle at Tesla Motors has resulted in the Model S, which Consumer Reports recently rated 99 out 100, the highest score the publication has ever given to a vehicle. In addition, in separate tests by the National Highway Safety Administration (NHTSA), the Tesla S received five stars in all categories, a rating that goes to only 1% of the vehicles it tests. When NHTSA tested the roof crush, the testing machine broke before the Tesla’s roof would fail.

Tesla’s entire business model is built on interdependency, something that’s much more the norm in Silicon Valley than on Madison Avenue. Musk even announced in June of 2014 that Tesla was opening up its patents and allowing anyone to use its electric vehicle I/P without fear of being sued. He isn’t being altruistic; he simply understands that the advancement of electric vehicle technology helps the entire industry move forward. Tesla’s success depends on a growing and dynamic electric vehicle market. In his letter announcing this dramatic move, he said that Tesla’s competitive advantage need not be defensive and that Tesla would compete and win on the merits of its talented engineers.

When you reach that level of maturity in open innovation, the world opens up for you. You can do things you’ve always dreamed of—maybe even new things you never dreamed possible.

An Innovation Network in Action

A few years ago, I led the creation of a commercially driven program called the Weight Management Collaborative. It included leading brands as well as a highly vetted group of subject matter experts and technology providers focused on consumer weight management. The premise was that consumers would benefit from new solutions that were better integrated across products, services, online support, and other areas.

In creating the initiative, we first mapped the ecosystem across everything from food, to devices, to behavioral support. While each of these companies had a role in improving consumers’ health and weight management in particular, these same companies were missing opportunities for collaborative approaches that could create new value for the consumer and new business opportunities for the companies themselves.

We identified a short list of complementary players who we believed could provide valuable support and were leaders and innovators in their categories. In this case, we began through a series of no-obligation summits with representatives from these companies, and this provided our client (and its potential partners) the opportunity to “try on” the relationships and to explore in a low-pressure environment whether opportunities for collaboration really existed.

Well, they did. As expected, some of the early invitees were not invited back, and some chose to opt out, but those that remained then began a series of highly fruitful consumer-focused projects and teaming agreements for new commercial opportunities—ones that these individual companies could not have addressed alone. Joint development projects emerged among various groups of two or three key players that were progressed through consumer studies and in-market pilots to quickly assess consumer and market interest. These cross-company initiatives likely never would have been possible without the network and ability to quickly learn from the market together before proceeding to deeper, more traditional collaboration.

The collaborative took only three months from initiation and mapping key players to holding the first summits. It took only six to eight months from initiation for highly fruitful joint development programs to emerge. How long would it take in a traditional approach to reach out to complementary players, find areas of common interest, and put the mechanisms and agreements in place to explore them?

Some Do’s and Don’ts for Building Innovation Networks

Do:

Align strategic objectives and acknowledge differing goals

Ensure senior management support from core network members

Treat all partners with respect; avoid being ‘large-company centric’

Focus on learning, not just results

Create a sense of community; simplify communication

Don’t:

Overly structure the network

Manage as a hierarchy

Allow conflicts to fester without being addressed

Overlook I/P ownership discussions and guidelines

Keep networks in place after they have served their purpose

How have you managed perceptions of uncertainty regarding open innovation? Have you or your organization weathered a crisis of faith? How are you building faith for open innovation initiatives through trusted relationships? I look forward to hearing your stories in the comments below.